Selling your practice is a major transition. Retired DDS Frank A. Odlum has been through the process and explains here that it is much less daunting than it may seem.
Dentists are an independent lot who love practicing—it’s usually difficult for us to leave the profession after years of hard work and establishing a respected position in the community. Eventually, though, every dentist must retire and, in almost all cases, sell their practice.What are some of the reasons that may have contributed to the decision to retire?· Perhaps your daily routine is becoming burdensome—you want to relax.· With age might come health problems. If this is your case, is it preventing you from practicing?
What are some of the drawbacks?
· You may not like retirement.
· What will you do to fill your newfound time?
· You’re out of the dentistry loop.
· You may not have definite future plans when you retire.
Questions arise. How do you prepare for this event? How do you market your practice for the best results? How do you begin the process of selling of your practice? We’ll explore these concerns as they relate to the solo practitioner.
10 things to know before you buy a dental practice (Infographic)
How much money do you need to retire from your dental practice?
Dentists in this position are well versed in the dos and don’ts of this important decision. They have no doubt spoken with many colleagues who have sold their practices. Still, they may not be familiar with the legal and financial details, which is why you hire lawyers, accountants, and, in some instances, practice brokers to sort it all out.
I started my practice many years ago, when the industry was far different from what it is today—young dentists could start up from scratch and become very productive. With today’s student debt, they have less opportunity to establish their own practice. Instead, their opportunities are, in many cases, limited to joining one of the large dental office chains, a group practice, or becoming an associate in a dental practice, which may or may not lead to a partnership and eventual ownership. That said, older dentists should keep in mind that today’s economics makes it extremely difficult for young dentists to approach them with the intention of buying their practice.
I visited some banks in preparation for this article and found they will lend buyers money to either buy a practice or begin a new practice, the difference between the two being their investment’s value. For instance, a loan to buy a practice is larger because there is an already-established value in that practice, whereas a brand-new practice has no existing value, so its loan is lesser.
Attracting buyers: helpful resources, advertising, and making your office appealing
Your dental company representative should be a helpful resource—mine knew my practice well and, with his contacts, was able to connect me with potential buyers. In my case, I determined after meeting with several brokers that they can be more an impediment then helpful while charging a handsome fee.
When selling my practice, I sent notices of my sale to nearby schools to attract new graduates or faculty members looking to purchase a practice, and advertised in the dental journals, both state and national.
Keeping your office neat, clean, and inviting creates an environment appealing to potential buyers.
Then, your obligation as the seller is to supply more serious potential buyers with enough information so they can determine whether they will make an offer. For these potential buyers, I made a packet containing the following:
Supply more serious potential buyers with enough information so they can determine whether they will make an offer.
· All assets, both tangible and intangible
· Fee schedule
· Demographics report
· Year-to-date financial activity report
· Production report
· Guide for dental practice appraisal report: appraiser rate from 1 to 10
· New patient report
· Past three years’ statement of income
· Past three years’ tax schedule C Return
· Procedure codes
· A list of surrounding towns and cities in and out of state from where I drew my patient roster
· The number and type of procedures that were performed over the past three years
Other important considerations include location, staff, equipment, and accounts receivables.
What to do with your practice sale proceeds
Financial planning: Living versus working and retiring
I sold my practice due to health reasons and did not have the luxury of time many dentists have during selling—for them it really is not rocket science. Selling your practice requires the expertise of your accountant, lawyer, and dental company representative. Most important is your accountant; he or she will appraise your practice, among other essential duties.
The valuation of my practice was established on the fair market value, i.e., the amount for which an ongoing business would change hands between a willing buyer and a willing seller. Net income—because it reflects future earnings and is the main economic benefit dentists receive from their practices—is the primary factor in determining a practice’s value.
The next step is setting an asking price. I based mine on the valuation added to an appraisal of the practice’s individual assets. When I went through this process, I was familiar with some various types of practice transitions: some preferred a down payment and received X number of payments over a period of time, some remained in the practice for an agreed time period to introduce the buyer to the patients and staff while continuing to earn an income, and some felt that they should leave once the buyer signs the purchase agreement.
I met with several dentists who came to my office for discussions on the sale. Some were serious; others, just curious. Some came with their representatives. A few colleagues who had sold their practices told me that, after receiving a down payment, they had problems in the following months receiving the promised checks to close the deal. One dentist in this position depended on a monthly payment and found that the buyer was doing poorly, so he had to take the practice back before it went down to nothing. In most instances, those who sold their practice due to health reasons sold for cash because there is the possibility the buyer may stop paying after the seller passes, leaving his family to make sure they received the promised payments. This can lead to a difficult situation.
When you arrive at this point in your life and are ready to sell, don’t make it difficult. Be proactive. Make your practice attractive and offer all the information needed to the buyer so he or she will be able to make a decision and an offer. Rely on your accountant, lawyer, and dental representative’s expertise to handle the numbers and law. Finally, rely on their advice in making your final decision. It’s not rocket science, and you’ll sleep easier at night.
Frank A. Odlum, DDS, retired, attended New York University College of Dentistry, class of 1960. Frank owned a private practice for 34 years, taught as an associate professor at Tufts University School of Dental Medicine for 13 years, and served in the United States Army Dental Corp for two years.